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Why CrowdStrike Stock Fell Sharply on Monday

By Daniel Sparks – Nov 1, 2021 at 1:17PM

Key Points

  • One analyst thinks CrowdStrike's competition is getting more intense.
  • Slowing growth could present a challenge for investors when it comes to valuing the growth stock.
  • SentinelOne may be morphing into a formidable competitor for CrowdStrike.

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Could the cybersecurity company's top-line growth decelerate meaningfully next year?

What happened

Shares of cybersecurity specialist CrowdStrike Holdings (CRWD 3.62%) tumbled on Monday. As of noon EDT, the stock was down more than 6%.

The stock's decline comes as one analyst warned that the company's competition may be heating up, potentially leading to decelerated growth next year.

A person holding a shield icon.

Image source: Getty Images.

So what

BTIG Securities analyst Gray Powell -- a longtime CrowdStrike bull -- cut his rating on the growth stock from buy to neutral, noting that his firm's channel checks suggest that competition is becoming more of a threat than it was previously. This could lead growth next year to "downtick from 2021," said Powell in a note to investors.

Chief among CrowdStrike's competition, Powell says, is SentinelOne (S 0.97%), which went public this summer.

Now what

Powell worries that if CrowdStrike's growth does begin to slow, investors may have trouble deciding how rapidly the deceleration may unfold. This could make shares difficult to value.

Of course, CrowdStrike's revenue growth rates have already been slowing. But the deceleration has been moderate. Revenue increased by 74% year over year in the fourth quarter of fiscal 2021, and by 70% in both the first and second quarter of fiscal 2022. These rates are also notably below the company's full-year fiscal 2021 revenue growth rate of 82%. A more meaningful slowdown could spook some investors.

Investors, of course, should be careful not to give too much weight to Powell's take. There's always a chance that his channel checks aren't reflective of actual performance. Nevertheless, it's always important for investors to be aware of the competitive context. Perhaps his concerns about competition are a good starting place for investors to reassess the competitive environment CrowdStrike operates in and see if these risks are priced into the stock or not.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy.

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